Turkish central bank lifts interest rates to 50%

The Turkish central bank announced on Thursday that it was lifting its policy rate to 50% from 45% in a surprise move.

Annual consumer price inflation in Turkey hit 67.07% in February, exceeding expectations.

The central bank said in a statement: "Tight monetary stance will be maintained until a significant and sustained decline in the underlying trend of monthly inflation is observed, and inflation expectations converge to the projected forecast range.

"Monetary policy stance will be tightened in case a significant and persistent deterioration in inflation is foreseen."

Liam Peach, senior emerging markets economist at Capital Economics, said hawkish communications leave open the possibility of another rate hike in April.

"With the potential for a faster pace of lira depreciation after the local elections at the end of this month and the recent run of strong inflation figures likely to continue, we now expect at least a 250bp hike next month too," he said.

"We were among the majority of analysts that had expected rates to remain on hold today. We had warned that the tightening cycle was likely to restart following the release of stronger-than-expected inflation figures in January and February, but thought that tightening would resume once the local elections were out of the way.

"It is unclear why the central bank had not flagged today’s move in advance, particularly considering that it has burned through billions of dollars of FX reserves in recent months to stabilise the lira. From that perspective there are some question marks. But even so, the decision to respond so quickly to the recent strong inflation figures and hike rates before the local elections is clearly a very encouraging signal for the policy shift."